Please note I have also posted this on the Ubuntu forums where I have added a bit more info.
Basically I have just done a fresh install of TKL-Core-Lucid in a KVM VM (under ProxmoxVE) and all went well. I have done some minor customisations (disabled byobu, added my custom sources.list which uses my local mirror and added 01proxy file for my LAN apt-cacher) and still all seemed well. FYI my custom sources.list has lucid-updates uncommented (not sure if that deviates from default).
Then I ran apt-get update && apt-get upgrade and all seemed to go fine until installing udev. It froze (using 0% CPU according to Proxmox). I waited about 20 mins and rebooted the VM. Now in the (Proxmox) VNC window it doesn't complete the boot and seems to hang, although I can log in fine via SSH. But when I try to run any apt related stuff it complains that udev not installed properly (as you'd expect). Rerunning the install just results in the same freeze. Grrr!
So where to now? I know I could probably quite easily work around this (by reinstalling and simply not running apt-get upgrade) but I'd rather work it out and lodge a bug with the relevant party (assuming its not something stupid I've done).